Investors Will Want Yang Ming Marine Transport's (TWSE:2609) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Yang Ming Marine Transport (TWSE:2609) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Yang Ming Marine Transport:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.13 = NT$51b ÷ (NT$433b - NT$51b) (Based on the trailing twelve months to September 2024).

Thus, Yang Ming Marine Transport has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Shipping industry average of 6.6% it's much better.

See our latest analysis for Yang Ming Marine Transport

In the above chart we have measured Yang Ming Marine Transport's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Yang Ming Marine Transport .

What Does the ROCE Trend For Yang Ming Marine Transport Tell Us?

The fact that Yang Ming Marine Transport is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 13% on its capital. And unsurprisingly, like most companies trying to break into the black, Yang Ming Marine Transport is utilizing 187% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Yang Ming Marine Transport has decreased current liabilities to 12% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

Our Take On Yang Ming Marine Transport's ROCE

Long story short, we're delighted to see that Yang Ming Marine Transport's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 1,643% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Yang Ming Marine Transport can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 2 warning signs we've spotted with Yang Ming Marine Transport (including 1 which is a bit unpleasant) .

While Yang Ming Marine Transport may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.